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Climate change

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Yes, it’s counter-intuitive and yes it provides ammunition to global warming sceptics. But as difficult as it is for some people to believe, colder weather is compatible with a warmer climate as they are not the same thing. Weather is what we experience day-to-day whereas climate represents the long-term averages of daily weather.

So, despite the protestations of the ill-informed, like Donald Trump, a winter cold snap doesn’t disprove climate change. Indeed, the rapid warming of the Arctic is contributing to icy conditions further south - such as the blanketing snow and freezing winds which swept across many parts of the Northern Hemisphere earlier this year.

As frigid polar air roared over Europe, the Arctic itself experienced a record warm spell. This released additional heat into the atmosphere which disrupted the high-altitude jet stream resulting in an Arctic blast. The Britons dubbed this blast the “Beast of the East”, the Swedes called it the “snow cannon”, while the Dutch labelled it “The Siberian Bear”.

Scientists predict that we will see more of the weird weather that caused temperatures to fall below zero across parts of Europe and America and rise above zero in the North Pole. The Arctic is warming at twice the rate as the rest of the planet. The resultant reduction in sea ice has kickstarted abrupt changes in the planet’s swirling atmosphere. This has impacted the jet stream which forms a boundary between the cold north and the warmer south.

Okay - enough of the quick science lesson. Let’s now get down to business.

The Earth’s climate is rapidly changing. Most climate scientists agree that the primary cause of that change is human activity. Carbon dioxide emissions took off with the Industrial Revolution and have risen relentlessly ever since. Rising temperatures have been driven by the release of carbon dioxide from burning coal, oil and natural gas.

The challenge facing humanity is to reduce carbon pollution and the finance sector is central to the process of decarbonising the economy. As banks bring individuals, businesses and investors together, they must be at the forefront of building a low-carbon economy and can do this through their financing and investment decisions.

Money deposited in a bank account is a form of investment. Banks use customer deposits to make other investments in the form of loans. Banks, therefore, have an indirect impact on the environment through their lending decisions. Moreover, they have a social obligation to create a sustainable world by investing responsibly to mitigate climate change.

Around the world, banks are channelling more funds into eco-friendly projects to reduce greenhouse gasses. Popular green financing initiatives include clean energy solutions, environmentally friendly real estate and sustainable infrastructure. Households that “go green” (e.g. install solar panels) are being rewarded for their commitment to the environment with low rate loans.

There are many solutions to address climate change and many of these are financed by green bonds. Green bonds offer a novel way to unlock the capital for projects that benefit the environment and society. Green bonds not only provide similar financial returns as regular bonds, but also allow for a bonus “green” return from their investments.

It’s clear that the transition from a fossil fuel-based energy mix to one that is renewable will not happen overnight. But progress is being made in eliminating unsustainable lending practices. A growing number of banks have decided not to finance new high carbon emitting assets with some closing the door completely to future lending to the fossil fuel sector.

The Paris Agreement gave extra impetus to companies to phase out usage of fossil fuels. Banks will be increasingly required to explain to investors, customers and regulators how they are reducing their exposures to such industries and ultimately what measures they are taking to respond positively to the threat of climate change.

Recently, 16 leading banks from four continents - including ANZ and NAB - agreed to collaborate in promoting climate transparency in financial markets as part of the UN Environment Programme Finance Initiative (UNEP FI). The group released a set of climate-related investor disclosures in alignment with the recommendations of the Financial Stability Board’s (FSB) Task Force on Climate-Related Financial Disclosures (TCFD).

In the age of climate change, the notion of business-as-usual in the financial sector is not sustainable. Investors increasingly care about what banks are doing to combat climate change and are pressing them to disclose high-carbon asset exposure. Banks can accelerate the transition to a low-carbon norm by mobilizing capital to tackle the immense challenge of climate change.

Banks still have a long way to go to align their businesses with climate stability, but headway is being made. While they are making the right noises about climate change, only time will tell if actions speak louder than words. For our children’s future, the world is banking on climate change.

Regards,
Paul J. Thomas, CEO

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CEO Paul Thomas